Futures margin offsets

On opening a futures position, you are required to pay an initial margin. This margin applies whether you are buying or selling futures. The initial margin may be covered with cash or with eligible collateral such as shares and instalment warrants. Daily variation margins are also payable, and must be covered with cash. 

From 14 October 2002, traders can offset the credit premium of bought option positions against futures initial margin liabilities. This means you have less of your assets tied up in the transactions – you can use your money more efficiently.

Example
Assume you have the following position in the market:

  • Bought 10 NCP November 9.00 Call options
  • Sold 10 XJO (S&P/ASX 200) futures contracts.

With NCP trading at around $9.10 on 26 September, the credit premium for this option series is 90 cents. The dollar value of the credit premium of your option position is 10 contracts x 1000 shares x $0.90 = $9,000 cr.

The initial margin on the XJO futures contract is currently set at $650 per contract. The dollar value of the initial margin payable on your futures position is therefore 10 contracts x $650 = $6,500 dr. 

In this example the $6,500 futures margin debit is offset against the $9,000 option premium credit, resulting in a nil futures margin requirement – where previously you would have been liable for the full $6,500 initial margin.

Note that an offset would also have applied if the futures position had been long instead of short.

If you want to qualify for margin offsets, your futures and options accounts at the Australian Clearing House must be held in the same name. Your broker must also clear their options and futures trades through the same legal entity.

At this stage only credit premiums from bought options positions may be offset against futures initial margins. However as soon as regulatory approval has been granted, this will open the way for the second stage of full directional offsets with options, in which written option positions also will be eligible.